Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
The paradox of progressivity in countries with low levels of taxation: Income tax in Guatemala Summary of an article published in the CEPAL Review N° 102, December 2010 Authors: Santiago Díaz de Sarralde, Carlos Garcimartín and Jesús Ruiz-Huerta Experts tend to use the Kakwani index (1977) and ReynoldsSmolensky index (1977) to analyse the effects of a fiscal reform on progressivity and redistributive capacity. However, these are not always appropriate to carry out normative valuations of fiscal reforms that involve significant changes in receipts. This problem is particularly serious in countries with low levels of taxation, where levels of tax evasion are likely to be higher and tax systems tend not to be very equitable. Using the conventional indices in this case leads to mistaken perceptions. This points to the need to develop other mechanisms able to assess fiscal reforms that generate changes in receipts, so as to supplement the information provided by traditional indicators. Two separate concepts are used for this: the tax bracket and the distance between net incomes or tax liabilities. The aim of this separation is to have another instrument of analysis to evaluate the design of fiscal structures with different revenue effects, both in terms of progressivity and redistributive capacity. The authors of this article analyse the case of Guatemala, which has one of the lowest levels of taxation in Latin America, and apply this new methodology to analyse personal income tax. Guatemala taxes a strikingly low proportion of personal income, while tax on companies and consumption is relatively high. excessively low due to reasons that go beyond high levels of informality and the extreme inequality within Guatemala. By way of conclusion, the authors point out that, according to traditionally used indicators, a reform that generates the necessary increase in the revenue capacity of the fiscal system will appear regressive. However, this apparent regressivity is only the result of the increased revenue capacity itself, rather than a narrowing of the gap between what is paid by high- and low-income taxpayers. In Guatemala, conventional indicators would suggest that taxation is less progressive. However, in both cases the differences in tax paid by higher and lower income groups increase, which appears to contradict what was said previously. On the contrary, this proposal clearly shows that reduced progressivity is merely the result of a higher average rate following the reforms, but that the cost of reforms will have a greater impact on higher-income taxpayers. __________________ The CEPAL Review was created in 1976 under the leadership of Raúl Prebisch. The publication has been a vehicle for the ideas that emerge from ECLAC and the efforts of researchers analysing Latin American and Caribbean reality and discussing approaches, strategies and policies aimed at driving equitable development in the region’s countries. Available online: http://www.eclac.cl/revista/ According to a more detailed analysis of taxation by sources of income, wages (income tax for employees) make very little contribution to tax revenues: 0.13% of GDP, or 3.92% of overall income tax. This is in contrast with the proportion represented by the same wages in GDP, which stood at 32% in 2006 according to National Accounting data. This represents a mere 0.34% of the total wage bill, which is For questions, please contact ECLAC’s Public Information and Web Services Section. E-mail: [email protected] ; telephone: (56 2) 210 2040/2149.